FTAI Aviation Ltd. (FTAI) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary highlights strong financial projections, including increased EBITDA and free cash flow, alongside strategic growth plans in the Aerospace sector. The Q&A section supports this with details on asset management and strategic partnerships, though some financial specifics were withheld. Overall, the company's strategic direction and optimistic guidance indicate a positive sentiment, likely leading to a stock price increase.

Key Financial Performance

Adjusted EBITDA $297.4 million in Q3 2025, up 28% compared to $232 million in Q3 2024. The increase is attributed to strong performance in Aerospace Products and Leasing segments.

Aerospace Products Adjusted EBITDA $180.4 million in Q3 2025, up 77% year-over-year from $101.8 million in Q3 2024. The growth is driven by strong global demand for prebuilt engines and modules, as well as increased adoption of aerospace products.

Leasing Adjusted EBITDA $134.4 million in Q3 2025. The pure leasing component was $122 million, down from $152 million in Q2 2025 due to the sale of the seed portfolio to SCI and the absence of a $24 million settlement related to Russian assets.

Adjusted Free Cash Flow $268 million in Q3 2025, including $88 million from the sale of the final 8 aircraft from the seed portfolio. Year-to-date free cash flow is $638 million, on track for a revised goal of $750 million for 2025.

Aerospace Products Margin 35% in Q3 2025, up from 9% year-over-year. The improvement is due to operational efficiencies and increased production at facilities in Montreal, Miami, and Rome.

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Operating Highlights

SCI (Strategic Capital Initiative) Partnership: FTAI successfully closed the final round of equity commitments for SCI, increasing the total equity capital to $2 billion. The partnership aims to deploy over $6 billion in capital by mid-2026, targeting a portfolio of approximately 375 aircraft.

Aerospace Products: Generated $180 million in adjusted EBITDA at a 35% margin, up 77% year-over-year. Production of CFM56 modules increased by 13% quarter-over-quarter, with a target of 750 modules in 2025.

New Airline Partnerships: Announced a multiyear perpetual power program with Finnair, showcasing FTAI's cost-efficient engine exchange services.

Market Share Expansion: FTAI aims to achieve a 25% market share in the engine aftermarket maintenance sector for CFM56 and V2500 engines.

Geographic Expansion: Acquired ATOPS for $15 million, enhancing operations in Miami and establishing a logistics hub in Portugal. Also launched a joint venture in Connecticut to expand component repair capabilities.

Production Growth: Refurbished 207 CFM56 modules this quarter, with plans to increase production to 1,000 modules in 2026.

Operational Efficiencies: Implemented a training academy in Montreal using VR and AI, improving throughput and productivity. Integrated operations in Rome and upgraded infrastructure for complex repairs.

Asset-Light Model: FTAI is pivoting to an asset-light model, focusing on aerospace products and strategic capital, which is expected to drive substantial free cash flow growth.

Dividend Increase: Increased quarterly dividend from $0.30 to $0.35 per share, reflecting confidence in financial performance.

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Risk or Challenges

Market Conditions: The company faces risks from the broader market conditions, including uncertainties in global demand for aerospace products and potential economic downturns that could impact airline operators and asset owners.

Regulatory Hurdles: The company must navigate regulatory approvals, such as the pending approval of PMA Part #3, which could impact production and margins if delayed.

Supply Chain Disruptions: Potential disruptions in the supply chain, including parts procurement and repair strategies, could affect production targets and cost efficiencies.

Strategic Execution Risks: The company’s ambitious growth targets, including scaling production to 1,000 CFM56 modules and achieving 25% market share, depend on successful execution of multiple initiatives, which could face operational or integration challenges.

Economic Uncertainties: Economic uncertainties could impact the company’s ability to maintain its growth trajectory and meet financial targets, especially in the context of its asset-light model and reliance on strategic capital initiatives.

Competitive Pressures: The company faces competitive pressures in the aerospace maintenance market, which could impact its ability to achieve its market share and margin goals.

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Guidance & Outlook

Equity Capital and Deployment: FTAI has increased the total equity capital of the 2025 partnership to $2 billion, with a new target to deploy over $6 billion in capital through the 2025 partnership, up from the previous target of $4 billion. Full deployment of capital is anticipated by mid-2026.

Aerospace Products EBITDA: FTAI projects Aerospace Products EBITDA to grow to $1 billion in 2026, up from $650 million to $700 million in 2025.

Aviation Leasing EBITDA: Aviation Leasing EBITDA is estimated at $525 million in 2026, consistent with expected 2025 results, excluding insurance recoveries and gains on sale.

Total Business Segment EBITDA: FTAI anticipates total business segment EBITDA to reach $1.525 billion in 2026, up from the original estimate of $1.4 billion.

Adjusted Free Cash Flow: FTAI expects to generate $1 billion in adjusted free cash flow in 2026, representing a 33% increase over the $750 million targeted in 2025.

Production Growth: FTAI targets production growth to 1,000 CFM56 modules in 2026, a 33% increase compared to 2025.

Aerospace Products Margins: Margins for Aerospace Products are expected to grow to 40%+ in 2026 as parts procurement and repair strategies are optimized.

Market Share: FTAI aims to achieve a 25% market share in the engine aftermarket maintenance sector in the coming years.

Strategic Partnerships: FTAI plans to launch additional SCI partnerships annually, leveraging the success of the current $6 billion partnership.

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Shareholder Return Plan

Dividend Increase: FTAI announced an increase in the dividend from $0.30 per quarter to $0.35 per share. The dividend of $0.35 per share will be paid on November 19 based on a shareholder record date of November 10. This marks the 42nd dividend as a public company and the 57th consecutive dividend since inception.

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Key Q&A

Q:Can you walk us through the financial implications of the upsizing of SCI, both from a segment EBITDA and free cash flow perspective?

A:The upsizing increases the number of aircraft in SCI by 33%, from 250 to 375. This accelerates growth under SCI, with SCI expected to represent 20%-25% of Aerospace products volume. The engines in these partnerships are committed to FTAI Aviation for 5-6 years, providing locked-in volume and operational efficiency. It also enhances cross-selling opportunities and faster market share gains in the MRE business and aerospace products.

Q:Can you provide details on the ATOPS acquisition and its impact on capacity and EBITDA contribution?

A:The ATOPS acquisition increases production capacity by 150 modules, raising overall production from 1,800 to 1,950 modules. It includes two facilities: one in Medley, Florida, with 60 employees, and another in Lisbon, Portugal, focused on field service. The acquisition is aimed at increasing capacity ahead of production needs. Additionally, the Bauer transaction, a 50-50 joint venture, is expected to save $75,000 per shop visit and handle 350 engines annually starting in 2026.

Q:Can you discuss the availability of aircraft engine assets, pricing, expected returns, and investor feedback on SCI?

A:Aircraft engine assets are sourced from lessors and airlines. Lessors sell older equipment to maintain ratings, representing over 1,000 aircraft annually. Airlines, facing upcoming shop visits, prefer sale leasebacks and engine exchanges to avoid capital investment. SCI offers predictable cash flows, short duration, and asset-backed structures, appealing to investors seeking higher returns with lower risk.

Q:How will the 19% equity portion of SCI be reflected in financials?

A:The 19% equity portion will appear in the equity income line for SCI's leasing returns. Servicing revenue will grow with the asset base and be included in other revenue in the Leasing segment. The 19% equity income will also be included in adjusted EBITDA in Leasing.

Q:What factors contributed to the rapid growth and market share gains in the module facility?

A:The growth is attributed to focus on specific engine types (CFM56 and V2500) and attracting and retaining great talent. The company avoided diversification and concentrated on solving customer problems, which led to increased market share and customer satisfaction.

Q:What is the calculus behind small investments like ATOPS for significant module capacity increases?

A:Small investments like ATOPS are possible due to the availability of underutilized facilities. The main gating factor is finding skilled mechanics, which the company addresses through training initiatives. These investments are cost-effective and provide significant capacity increases.

Q:What is the purpose of the JV with Bauer, and how does it impact margins and customer relationships?

A:The JV with Bauer focuses on engine accessories, improving margins, turnaround times, and in-sourcing capabilities. It enhances customer relationships by providing better control over the repair process and leveraging Bauer's expertise in test equipment.

Q:Can you expand on the concept of FTAI being in the spread business?

A:FTAI's business involves buying run-out engines, rebuilding them, and selling them with added hours and cycles. This manufacturing-like model benefits from predictable cash flows and is resilient in both weak and strong markets. The asset management side involves raising capital and managing aircraft assets, providing committed volume to FTAI Aviation.

Q:How will the transition to industrial accounting impact cash flow reporting?

A:The transition will move cash proceeds from asset sales from investing to operating activities, aligning with GAAP cash flow statements. For example, $722 million in cash proceeds for the 9 months ended 9/30 would shift to operating activities.

Q:What drives the 2026 guidance, and what are the key contributors to growth?

A:The guidance is driven by volume growth in the MRE product (33% increase in production) and margin improvements (targeting 40% margins). Growth comes from new and existing customers, larger orders, and initiatives like PMA approvals and repair capabilities.

Q:What is the margin impact of the Finnair contract?

A:The Finnair contract is in line with other large programs, covering their entire fleet of 36 engines. It provides cost savings and flexibility for the airline while maintaining market-rate margins for FTAI.

Q:What are the management and performance fees for SCI, and how does this align with FTAI's strategy?

A:Management fees are market-based, typically 1% or higher on total assets, with low double-digit incentive compensation for exceeding return hurdles. This aligns with FTAI's strategy of transitioning to an asset management model with predictable cash flows and high returns.

Q:What is the outlook for M&A and capacity expansion?

A:M&A and capacity expansion will continue with cost-effective investments like ATOPS and repair capabilities. The focus is on finding accretive opportunities with minimal capital requirements, leveraging existing facilities and partnerships.

Q:What is the status of the V2500 program?

A:The V2500 program is halfway through its 5-year deal, with strong demand due to GTF grounding issues. The company plans to stay in the V2500 engine market and explore extensions or alternatives.

Q:What percentage of Aerospace Products revenue is expected to come from SCI?

A:SCI is expected to contribute 20%-25% of Aerospace Products revenue, with growth in both SCI and third-party business ensuring a balanced revenue mix.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the financial implications of the upsizing of SCI in terms of exact EBITDA and free cash flow figures. Additionally, they did not disclose the exact management and performance fees for SCI, only stating they are market-based. The margin impact of the Finnair contract was described as being in line with other large programs, but no specific figures were provided.

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Earnings Word Cloud

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